Transfer Pricing for India–UAE and India–UK Groups

Transfer pricing is the set of rules requiring transactions between related companies, such as an Indian parent and its UAE or UK subsidiary, to be priced as if the parties were independent. In India it applies to any international transaction between associated enterprises, now under sections 161 to 173 of the Income-tax Act 2025, in force from 1 April 2026.

For mid-sized groups, transfer pricing is where the commercial story meets the tax return. If you are setting up an Indian company in Dubai to trade goods, or expanding an Indian services business to Dubai, the price between the two entities decides where profit is taxed. The same is true of India–UK groups in both directions.

Key points

• India's transfer pricing rules moved from sections 92–92F of the 1961 Act to sections 161–173 of the Income-tax Act 2025 from 1 April 2026. The principles are unchanged.

• The UAE applies the arm's length principle under Articles 34–36 and 55 of its Corporate Tax Law; the UK under Part 4 of TIOPA 2010, with an exemption for most SMEs.

• India's accountant's report is now Form 48 (formerly Form 3CEB). For tax year 2026–27 it is due by 31 October 2026.

• From tax year 2026–27, IT services captives can elect a 15.5% safe harbour margin on transactions up to ₹2,000 crore (Union Budget 2026–27).

• The price follows functions, assets and risks. An entity with no people cannot keep a large profit.

What is transfer pricing and when does it apply in India?

Transfer pricing applies in India whenever an Indian taxpayer enters into an international transaction with an associated enterprise, or a specified domestic transaction above the prescribed threshold. The income from those transactions must be computed at the arm's length price: the price independent parties would agree in comparable circumstances.

India introduced its transfer pricing code through the Finance Act 2001, with effect from assessment year 2002–03. From 1 April 2026 the Income-tax Act 2025 renumbered the provisions:

The other side of the transaction has its own rules. In the UAE, Article 34 of Federal Decree-Law No. 47 of 2022 requires related-party and connected-person transactions to meet the arm's length standard, with Articles 35 and 36 defining those relationships and Article 55 covering documentation.

The Federal Tax Authority's Transfer Pricing Guide (CTGTP1, October 2023) follows the OECD Transfer Pricing Guidelines. In the UK, Part 4 of the Taxation (International and Other Provisions) Act 2010 applies, reformed for chargeable periods beginning on or after 1 January 2026.

Small and medium-sized enterprises are generally exempt where the counterparty is in a qualifying territory, which includes India because the India–UK treaty has a non-discrimination article. In November 2025 the government confirmed this exemption will stay. India's own rules apply regardless of the UK exemption.

India is not an OECD member, so the OECD Guidelines are persuasive rather than binding in India, but Indian tribunals regularly refer to them.

What do typical India–UAE and India–UK transfer pricing models look like?

Most mid-sized groups use one of four models, and each has a natural "tested party" and method. The model must describe what actually happens, not what the invoices say.

Example: a Pune exporter with a Dubai hub. A ₹120 Cr Pune engineering exporter sells ₹30 Cr of goods a year to its JAFZA subsidiary, which resells them for ₹36 Cr to customers in five GCC markets. If the UAE company employs four salespeople, holds stock and collects receivables, a distributor margin benchmarked against independent distributors is defensible.

If the same ₹6 Cr margin sits in a UAE company with no employees while India ships direct and manages the customers, India's tax officer will argue the profit belongs in India. Our corridor guides for UK subsidiaries of Indian companies and for UK companies setting up in India apply the same logic to the UK.

Which transfer pricing method should you use: TNMM, cost plus or resale price?

Use the method that best fits the transaction and the available data. India prescribes the comparable uncontrolled price (CUP), resale price, cost plus, profit split and transactional net margin (TNMM) methods, plus an "other method", and requires the most appropriate one to be selected.

Cost plus in practice. When people say "cost plus" for an Indian captive, they usually mean TNMM with net cost plus as the indicator: operating profit as a percentage of operating costs, compared with independent Indian service companies. India generally uses a range of comparable results where enough comparables exist.

The UAE Guide accepts the interquartile range, and for low value-adding support services it allows a simplified cost plus 5% mark-up without detailed benchmarking.

What documentation is needed: Form 48, master file and local file?

In India, every taxpayer with an international transaction must obtain an accountant's report, and larger groups must keep detailed documentation and file a master file. The UAE and UK set much higher thresholds.

India's documentation thresholds and form numbers come from the Income-tax Rules 2026, notified on 20 March 2026. Penalties have historically been 2% of the transaction value for failing to keep or furnish documentation and ₹1 lakh for not furnishing the accountant's report.

A transfer pricing study, the "TP report" people search for, is the analysis behind Form 48: the functional analysis, method selection, comparables search and conclusion. Commercial databases such as Prowess and Capitaline are commonly used for Indian comparables.

When should you use safe harbour or an advance pricing agreement?

Use safe harbour when certainty matters more than the lowest possible margin, and an APA when transactions are large, recurring and contentious.

India's safe harbour. Announced in the Union Budget 2026–27 on 1 February 2026, software development, IT-enabled services, KPO and software-related contract R&D are combined into one "Information Technology Services" category with a common margin of 15.5%. The threshold rose from ₹300 crore to ₹2,000 crore of eligible transactions, approval is automated, and the election can run for five years.

The Income-tax Rules 2026 give effect to this from tax year 2026–27. A UK captive whose benchmarked margin would be 12% may still choose 15.5% to avoid audits; one whose comparables point to 18% has less reason to elect.

APAs. India's APA programme is mature. The CBDT signed a record 219 APAs in 2025–26, taking the total to 1,034 since inception, including 284 bilateral APAs, with the UK among its bilateral partners (CBDT, 31 March 2026).

The Budget also announced a fast-track unilateral APA process for IT services, aiming to conclude within two years. The UAE opened unilateral APAs from 30 December 2025 for domestic transactions, with cross-border unilateral APAs due in 2026 and fees from AED 30,000.

HMRC offers APAs under its statement of practice. For an India–UK group, a bilateral APA gives certainty in both countries.

What are the red flags: invoice-only hubs and missing substance?

The biggest red flag is profit sitting where no one works. Tax authorities in all three countries look at who performs functions, controls risks and owns assets, and they price accordingly.

Watch for:

• Invoice-only hubs. A UAE company that bills customers while Indian staff win, deliver and manage the work. The UAE company may earn little more than a routine return, and India may also argue that the company is effectively managed from India.

• Founder-led decisions. If the promoter takes every UAE decision from Mumbai, the UAE company's risk control is weak on paper and in fact. Our article on transfer pricing in founder-led groups explains how informal decisions become review points.

• Substance gaps. Thin UAE or UK entities without people, premises or decision-making. See economic substance after 2022.

• Free zone assumptions. A UAE free zone company is not automatically at 0%. Qualifying Free Zone Person status depends on qualifying income and adequate substance, and related-party pricing still has to be at arm's length.

• Silent growth in India's role. A captive that started with QA and now leads product development still priced at routine cost plus.

• Undocumented intercompany charges. Management fees and cost recharges with no agreement, no benefit evidence and no allocation key.

The Greenwolf view

Transfer pricing should describe a business model, not create one. Commercial design comes first: decide what India, the UAE and the UK each genuinely do. Tax follows functions, risks and substance, and the transfer price is simply the arithmetic of that design.

Five questions we work through with every group:

1. What does each entity actually do? List the people, decisions and assets in each country.

2. Who bears which risk, and can they control it? Market, credit, inventory and delivery risk should sit with the entity whose people manage it.

3. Where is IP created and who directs it? Do not move valuable IP casually, and do not let India's role outgrow its pricing.

4. Can each entity's result be defended from comparables? If not, change the model or the substance, not the spreadsheet.

5. Is the paperwork ready before year end? Intercompany agreements, Form 48 data and UAE disclosures are much easier to prepare contemporaneously.

For captive centres specifically, our guide to transfer pricing in India for captive service centres goes deeper into cost plus, safe harbour and R&D.

Designing or reviewing an India–UAE or India–UK structure? Get the corridor checklist, or book a 30-minute structuring call with Greenwolf Advisors to test whether your transfer pricing matches what each entity really does.

This article is general information, not advice for a specific case. Rules change; please take advice on your own facts before acting.